Risk-On Tone Ahead of PCE

Today’s PCE report will help determine whether the market’s recent hawkish turn is justified.

Key Takeaways

• PCE Data Will Test the Hawkish Narrative: Today’s centerpiece is the release of the PCE deflator (and personal income & spending data) for May. This will be the first PCE release since Federal Reserve Chairman Kevin Warsh inaugurated his new “low forward guidance” era at the June Fed meeting, and it represents a key test of whether inflation is evolving in a way consistent with the market’s hawkish interpretation of Fed policy, with major implications for bonds, equities, and the U.S. dollar. The May data are slightly stale given the reversal in oil prices over the course of June, and our view is that headline inflation is at, or very near, its cyclical peak and that the disinflation trend should reassert itself over the balance of the year.